SPECIALIST SERIES: What Is An Investible Hypothesis?

April 3, 2017

By Jay Knowles

Partner, Innovation

Many venture capitalists look for an opportunity to invest in a company or a project such that if it reaches a certain inflection point that company will become significantly more valuable, and investors look to understand what it should cost to get to that point. For example, for a therapeutic opportunity, either small molecule or antibody, investors often like to see how much it will cost to take a drug from idea stage (e.g., when you have a chemical hit against a novel biological target but not much more than that) through to clinical proof of concept, where a pharmaceutical company might acquire the biotech company.

It is helpful in considering this hypothesis to build-in comparable examples of biotech companies in the specific field/disease indication that has been acquired by pharmaceutical companies, when they were acquired and for how much. It is also helpful to consider what intermediate steps may add value along the way, and how much funding will be required to get to those discrete points, since investors may wish to fund the company incrementally rather than all at once. These incremental funding rounds are often referred to as seed, series A, and series B, where the seed round is often a $1-2M investment to validate the science outside of the academic setting and to ensure the investable hypothesis is correct, the series A may take you through to IND stage for the lead program, and the series B will end in clinical proof of concept. Taken together, these rounds of financing add up to the investment required to fully test the investable hypothesis, and enable venture capitalists to get a sense of how strong a syndicate is required, and how much capital risk they will take on before they are able to get to an exit and have their investment (plus hopefully some profit) returned. At BBIC, it would be helpful to understand the investable hypothesis because that will be the route to further commercialization should the proposed experiments be successful.